The economy added 161,000 jobs
in October; slightly below expectations of 175,000. The unemployment
rate dropped to 4.9% from 5%. This was largely attributable to the
195,000 Americans that dropped out of the labor force, which brought the
labor force participation rate down to 62.8% from 62.9%.

The government
revised the September report to show 191,000 new jobs were created
instead of a previously reported 156,000. August’s gain was raised to
176,000 from 167,000.

The 3-month average now stands at 176,000. Job growth
has averaged 181,000 per month this year. In October, the
year-over-year change was 2.36 million jobs. The U.S. economy has been
adding jobs for 73 consecutive months.

The biggest lingering weakness
in the employment picture is in the millions of people who have left
the labor force entirely — not just in October, but over the last seven
years. Only 59.7 percent of American adults were employed in October,
down from 62.9 percent at the start of 2008.

A big part of that decline
is demographic: baby boomers hitting retirement age. But millions of
people dropped out of the labor force entirely during and after the
recession and have not returned to the work force.

Meanwhile, the employment-to-population ratio for prime age workers
reached 78.2 percent, its highest level since 2008; and that was one of
the best numbers in this month’s report; it is up a full percentage
point in the past year.

Now, it
still indicates that there is some slack in the labor force – this
number could climb to over 80%, but still it is solid. Also, the 25 to
54 participation rate increased in October to 81.6%, an indication that
the demographics of the workforce is changing, with older workers
retiring and younger workers filling available jobs.

And thus, we are starting to see some increase in wages…,
finally. Average hourly earnings climbed by 0.4% during the month, which
was better than the 0.3% gain expected. This measure of wages is
growing at a 2.8% pace year-over-year. The average U.S. employee earned
$25.92 an hour in October, up 10-cents.

Non-managers — what the BLS
calls “production and non-supervisory employees” — saw their earnings
rise a more modest 2.4 percent, but they too are seeing gains that are
running well ahead of inflation.
With the PCE inflation gauge at 1.7%, most workers are seeing real
gains in wages; for most workers, this means money in the bank.

For much of the past seven years of the economic recovery, the focus
has been on just adding jobs, now we are starting to see a shift, where
the jobs are a slightly better quality. Most of the employment gains in
the past year have been in full-time jobs. Employers are starting to
realize they need to pay better to attract and retain good workers. As
workers earn wages, they will spend more, creating a virtuous cycle
through the economy.

Meanwhile, the prospects of job seekers are improving: More than one
in four unemployed workers found a job in October. The so-called
job-finding rate fell early this year but has since rebounded. ZipRecruiter,
which distributes job postings primarily from small and midsize
businesses, reported a substantial jump in listings last month.

The October report showed the average workweek was unchanged at 34.4
hours. Typically, the work week goes down when there is a natural weather
event such as Hurricane Matthew, although I have not seen anything to
show the hurricane adversely affected job growth.

Health care companies, white-collar professional outfits, and
financial firms led the way in job creation. The manufacturing sector
lost 9,000 jobs last month. The retail sector lost 1,000 jobs last
month. Retailers hired seasonal workers in October at a slower pace than
the last two years.

Typically, retail companies start hiring for the
holiday season in October, and increase hiring in November. This
might be an early indicator of the holiday shopping season. Private
payrolls increased 142 thousand. Government added 19,000 jobs.

A broader measure of unemployment, known as the U-6, fell to 9.5%
from 9.7%, touching the lowest level since May 2008. The so-called U-6
rate includes part-timers who can’t find a good full-time position and
discouraged job-seekers who’ve recently given up looking for work. Even
as full-time positions have increased, nearly 6 million Americans are
working part-time because they can’t find full-time work, a figure that
has stalled out over the past year. At the same time, we are seeing a
major shift in how people work.

The winners and losers
in the economy have traditionally been easy to identify. If you had a
full-time job, you won. A full-time job provided the steady income
needed to support our traditional version of the American Dream. A
full-time job was also the only way to access important
employer-provided benefits, such as health insurance and a pension, as
well as protections against workplace injuries, discrimination, and
harassment. Whereas a part-time job was on the fringes
of the labor market.

One of the things workers learned in the downturn
was that a full-time job was not a guarantee of job security. This, in
turn, led to more workers engaging, whether involuntarily or
voluntarily, in the gig economy. And it turns out the gig economy is
just fine for many workers.

Workers with specialized skills, deep expertise, or in-demand
experience win in the gig economy. They can command attractive
compensation, garner challenging and interesting work, and secure the
ability to structure their own working lives. On the other end of the
spectrum, retail and service workers currently in low-skill, low-wage
jobs can also win in the gig economy.

Consider – a driver for Uber is
basically a taxi driver; they are contractors with low pay and no
benefits, no overtime or minimum wage, and no access to unemployment
insurance. But there are many more people willing to be Uber drivers
than taxi drivers, in part because they can control when and how much
they work.

There will always be bad jobs or low-paying jobs – the gig
economy doesn’t change that reality. However, the gig economy gives
low-skill workers a way to move from bad jobs to better work. It’s not a
sufficient change, but it’s moving in the right direction.

Atlanta Fed President Dennis Lockhart
in a speech this morning, called the jobs report a “solid” outcome. The
Fed has been signaling for months that it intends to raise interest
rates in December. Fed officials believe that the unemployment rate is
close to the level where inflation may spike if rates don’t move up. The
central bank said earlier this week that it is just waiting for “some”
further evidence of a tightening labor market and rising inflation.

In
his speech, Lockhart said the central bank was likely to tighten only
“very gradually.” Dallas Fed President Robert Kaplan said in another
speech that the case for a rate hike was strengthening and Fed Vice
Chairman Stanley Fischer said the labor market is strong and the central bank could overshoot its goals.

The most recent data on inflation
shows “core” PCE, the Fed’s preferred inflation measure, rose 1.7%
year-on-year in October. In October, average hourly earnings rose 2.8%
over the prior year, the fastest pace since the recession; this means
workers are seeing actual improvement in earnings, for the first time in
a long time.

This means the Fed is going to be concerned about
inflation, and will have a hard time justifying low rates, better suited
for an emergency. It doesn’t necessarily mean the Fed should raise
rates, but it likely means they will.

The S&P 500 fell nearly 0.2 percent and extended its losing
streak to nine sessions, the longest in almost 36 years. During that
streak, the index has fallen nearly 3 percent. Although I tend to
believe Wall Street was more concerned with the upcoming election than
the jobs numbers.

Friday’s jobs report is, of course, the last one before the presidential election
on Tuesday. The Trump camp called the October jobs report “disastrous,”
adding that the report, “underscores the total failures of the
Obama-Clinton economy that delivers only for donors and special
interests and robs working families.”

As a Democrat, Clinton benefits from continued positive news out of
the US economy given that voters and markets likely see her
administration continuing the economic policies of President Obama. And
while economic growth as measured by GDP has been middling at about 2%,
the labor market has been notably strong during Obama’s time in office.

The October job numbers will have a large effect on the election.
Most voters already know what they think about the economy and whom to
credit or blame for it.

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